WESCO International(US:WCC)2022-11-04 00:09Financial Data and Key Metrics Changes - The company reported organic sales growth of 17%, with adjusted EBITDA margin reaching a record 8.6% and adjusted EPS of $4.49, up 64% year-over-year [9][26][27] - Gross margin was the highest ever at 22.1%, an increase of 80 basis points year-over-year [25] - Adjusted EBITDA increased by 41% compared to the prior year, driven by higher sales and expanded gross margin [29] Business Line Data and Key Metrics Changes - EES segment sales grew 15% year-over-year, with adjusted EBITDA of $226 million, up 30% from the prior year [32][33] - CSS segment sales increased by 10% year-over-year, with adjusted EBITDA margin at 9.8%, 80 basis points higher than the prior year [34] - UBS segment saw exceptional growth with organic sales up 29% year-over-year and adjusted EBITDA up 62% [36][38] Market Data and Key Metrics Changes - Backlog reached a record level, up 5% sequentially and over 60% year-over-year, with no cancellations reported [23] - Preliminary October sales were up approximately 12% year-over-year, despite expected foreign exchange headwinds [24][46] Company Strategy and Development Direction - The company is focused on maximizing exposure to secular growth trends, with a recent acquisition of Rahi Systems to enhance data center solutions [11][17] - The cumulative sales synergy target has been raised to $1.4 billion, reflecting strong cross-sell momentum [16][40] - The company aims to reduce leverage, achieving a ratio of 3.2 times trailing 12-month adjusted EBITDA, down from 5.7 times since the Anixter acquisition [45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand environment, despite supply chain constraints and inflationary pressures [47][57] - The outlook for full-year organic sales growth remains unchanged, with reported sales growth adjusted to reflect foreign exchange impacts [46][51] - Management highlighted the importance of backlog growth and inventory investments to support future sales [74] Other Important Information - The company is maintaining its adjusted EPS outlook of $15.80 to $16.20, representing growth of approximately 58% to 62% year-over-year [51] - The company expects to generate $65 million to $80 million in sales from the acquisition of Rahi Systems in the final two months of the year [49] Q&A Session Summary Question: Demand cadence since the New York Analyst Meeting - Management noted strong growth across all business units, with a backlog growth of 5% sequentially and a book-to-bill ratio above 1.0 [66] Question: Free cash flow guidance - Management expressed confidence in generating positive free cash flow in Q4, driven by a sequential step down in sales releasing working capital [70][72] Question: Pricing outlook for 2023 - Management indicated that pricing increases are expected to remain consistent with previous quarters, with a clearer view anticipated in the coming weeks [80] Question: CSS backlog trends - Management remains bullish on CSS growth prospects, stating that flat backlog trends are not unusual and do not indicate a leading indicator [95] Question: Gross margin outlook for 2023 - Management emphasized the ongoing gross margin improvement program and expressed confidence in maintaining margins despite inflationary pressures [92] Question: Rahi Systems acquisition profitability - Management confirmed that Rahi's profitability is consistent with the CSS segment and expressed excitement about the synergies expected from the acquisition [117]